March retail sales, industrial production, & new home construction; February’s business inventories

Major monthly reports released this past week included the Retail Sales report for March and the Business Sales and Inventories report for February from the Census Bureau, the March report on Industrial Production and Capacity Utilization from the Fed, and the March report on New Residential Construction from the Census Bureau…the week also had the release of the March Import-Export Price Index and the Regional and State Employment and Unemployment Summary for March, both from the Bureau of Labor Statistics….

This week also saw first two regional Fed manufacturing surveys for April: the Empire State Manufacturing Survey from the New York Fed, which covers all of New York state, an NYC suburban county in Connecticut, northern New Jersey, and Puerto Rico, reported their headline general business conditions index fell to -78.2, “the lowest level in the history of the survey – by a wide margin”, down from +3.7 in March, suggesting a deep depression in First District manufacturing… meanwhile, the Philadelphia Fed Manufacturing Survey, covering most of Pennsylvania, southern New Jersey, and Delaware, reported its broadest diffusion index of manufacturing conditions fell to -56.6 in April from -12.7 in March, the index’s lowest reading since July 1980, indicating that the great majority of the region’s manufacturing firms reported decreases in their activity this month…

Retail Sales Fell 8.7% in March, Largest Drop on Record

Seasonally adjusted retail sales decreased by 8.7% in March, the largest drop on record, after retail sales for January and February were both revised a bit higher…the Advance Retail Sales Report for March (pdf) from the Census Bureau estimated that our seasonally adjusted retail and food services sales totaled $483.1 billion during the month, which was down by 8.7 percent (±0.4%) from February’s revised sales of $529.3 billion and 6.2 percent (±0.7 percent) below the adjusted sales in March of last year…February’s seasonally adjusted sales were revised from $528.1 billion to $529.3 billion, while January’s sales were revised from $530.9 billion to $531.643 billion; as a result, the percent change from January to February was revised from down 0.5 percent (±0.4 percent) to down 0.4 percent (±0.2 percent)….estimated unadjusted sales, extrapolated from surveys of a small sampling of retailers, indicated sales were actually up 0.2%, from $481,035 million in February to $481,912 million in March, while they were down 7.0% from the $518,304 million of sales in March of a year ago…

Included below is the table of the monthly and yearly percentage changes in retail sales by business type taken from the March Census Marts pdf…to again explain what this table shows, the first double column shows us the seasonally adjusted percentage change in sales for each kind of business from the February revised figure to this month’s March “advance” report in the first sub-column, and then the year over year percentage sales change since last March in the 2nd column; the second double column pair below gives us the revision of the February advance estimates (now called “preliminary”) as of this report, with the new January to February percentage change under “Jan 2020 r” (revised) and the February 2019 to February 2020 percentage change as revised in the 2nd column of that pair…(for your reference, our copy of this same table from the advance February estimate, before this month’s revisions, is here)…. lastly, the third pair of columns shows the percentage change of the first 3 months of this year’s sales (January, February and March) from the preceding three months of the 4th quarter (October thru December) and from the same three months of the 1st quarter a year ago….as you can see from that fifth column, overall retail sales for the 1st quarter of 2020 were roughly 2.4% lower than the 4th quarter of 2019, which implies that nominal personal consumption of goods for the 1st quarter will be down by roughly the same amount, before any inflation adjustments…

March 2020 retail sales table

In addition to overall sales indicating the largest drop on record, many of the other subsets by type of sales were also record breaking…sales at furniture stores, sales at clothing stores, sales at department stores, sales at auto dealers, sales at sporting goods stores, and sales at bars and restaurants were all down by the most on record; on the other hand, sales at grocery stores and sales at drug stores were up by the most they’ve ever been…for most of the metrics you see above, a change in sales greater than 2% is very unusual; this month each of those metrics except for building supplies saw month over month change in sales greater than 3%…

To compute March’s real personal consumption of goods data for national accounts from this March retail sales report, the BEA will use the corresponding price changes from the March consumer price index, which we reviewed when it was released last week…to estimate what they will find, we’ll first separate out the volatile sales of gasoline from the other totals…from the third line on the above table, we can see that March retail sales excluding the 17.2% price-related decrease in sales at gas stations were down by 8.0%….then, removing the 25.6% increase in grocery & beverage sales and the 26.5% decrease in food services sales out from that total, we find that core retail sales were down by around 10.7% for the month…since the March CPI report showed that the the composite price index of all goods less food and energy goods was 0.3% lower in March, we can thus figure that real retail sales excluding food and energy will show a decrease of around 10.4%…however, the actual adjustment in national accounts for each of the types of sales shown above will vary by the change in the related price index…for instance, while nominal sales at motor vehicle & parts dealers were down 26.5%, the March price index for transportation commodities other than fuel was 0.1% higher, which would mean that real unit sales at auto & parts dealers were probably on the order of 26.4% lower, once the price increase is taken into account… on the other hand, while nominal sales at clothing stores were 50.2% lower in March, the apparel price index was 2.0% lower, which means that real sales of clothing likely fell around 48.2%…

In addition to figuring those core retail sales, we should adjust food and energy retail sales for their price changes separately, just as the BEA will do…the March CPI report showed that the food price index was 0.3% higher, as the price index for food purchased for use at home rose 0.5% while the index for food bought away from home was 0.2% higher…hence while nominal sales at food and beverage stores were 25.6% higher, real sales of food and beverages would be around 25.1% higher in light of the 0.5% higher prices…on the other hand, the 26.5% decrease in nominal sales at bars and restaurants, once adjusted for 0.2% higher prices, suggests that real sales at bars and restaurants fell around 26.7% during the month…and while sales at gas stations were down 17.2%, there was a 10.2% decrease in price of gasoline during the month, which would suggest that real sales of gasoline were down on the order of 2.9%, with a caveat that gasoline stations do sell more than gasoline, so the actual decrease in real gas station sales was likely smaller…averaging real sales that we have thus estimated back together, and excluding food services, we’ll then estimate that the income and outlays report for March will show that real personal consumption of goods fell by more than 6.5% in March, after being unchanged in February (revised) and rising by a revised 0.2% in January…at the same time, the 26.7% decrease in real sales at bars and restaurants would reduce March real personal consumption of services by nearly 3%…

Industrial Production Down 5.4% in March, Worst Drop Since January 1946

The Fed’s G17 release on Industrial production and Capacity Utilization for March reported that industrial production fell 5.4% in March, the largest drop since January 1946,  after rising by a revised 0.5% in February, which left production 5.5% lower than a year ago… the industrial production index, with the benchmark set for average 2012 production to be equal to 100.0, ended at 103.7 in March, down from an unrevised February index index reading of 109.6, after the January index was revised up from 109.0 to 109.1, which caused the February increase to be revised from 0.6% down to 0.5%…meanwhile December index was unrevised at 109.6, while the November index was revised from 110.0 to 110.1…as a result of those revisions and the March drop, US industrial production was down at a 7.5% annual rate for the first quarter as a whole…

The manufacturing index, which accounts for around 77% of the total IP index, fell 6.3% from an unrevised 104.9 in February to 98.3 in March, the largest decline since February 1946, after the the January manufacturing index was revised from 104.8 to 104.9 and the December manufacturing index was revised from 105.0 to 105.1….after revisions, the manufacturing index now sits 6.6% below its year ago level, while first quarter manufacturing has shrunk at a 7.1% annual rate from that of the 4th quarter of 2019….meanwhile, the mining index, which includes oil and gas well drilling, fell 2.0%, from 132.7 in February to 130.1 in March, after the February mining index was revised down from last month’s reported 133.0, which left the mining index unchanged from where it was a year earlier…finally, the utility index, which typically fluctuates due to deviations from normal temperatures, fell by 3.9% in March, from 105.5 to 101.3, after the February utility index was revised from 105.4 to 105.5, now up 7.0% from January…including this month’s revisions, the utility index is now 5.1% below that of a year ago, partly due to a warmer March this year than last..

This report also includes capacity utilization data, which is expressed as a percentage of our plant and equipment that was in use during the month…seasonally adjusted capacity utilization for total industry fell to 72.7% in March from 77.0% in February, which was unrevised from a month ago…capacity utilization of NAICS durable goods production facilities fell from an unrevised 74.7% in February to 67.8% in March, while capacity utilization for non-durables producers was down from 76.4% to 73.9%…capacity utilization for the mining sector fell to 86.3% in March from 88.2% in February, which had been reported as 88.4% last month, while utilities were operating at 72.7% of capacity during March, down from 75.9% in February, while the February utility index was revised from the previously reported 75.8%…for more details on capacity utilization by type of manufacturer, see Table 7: Capacity Utilization: Manufacturing, Mining, and Utilities, which shows the historical capacity utilization figures for a dozen types of durable goods manufacturers, 8 classifications of non-durable manufacturers, mining, utilities, and capacity utilization for a handful of other special categories.. 

March Housing Starts and Building Permits Significantly Lower than February’s

The March report on New Residential Construction (pdf) from the Census Bureau estimated that new housing units were being started at a seasonally adjusted annual rate of 1,216,000 in March, which was 22.3 percent (±12.2 percent) below the revised estimated annual rate of 1,564,000 starts in February, but was 1.4 percent (±12.7 percent)* above last March’s rate of 1,199,000 housing starts a year….the asterisk indicates that the Census does not have sufficient data to determine whether housing starts actually rose or fell over the past year, with the figures in parenthesis the most likely range of the change indicated; in other words, March housing starts could have been down by 11.3% or up by as much as 14.1% from those of last March, with revisions of a greater magnitude in either direction still possible…in this report, the annual rate for February housing starts was revised from the 1,599,000 reported last month to 1,564,000, while January starts, which were first reported at a 1,567,000 annual rate, were revised from last month’s initial revised figure of 1,624,000 annually to a 1,619,000 annual rate with this report….

These annual rates of housing starts reported here were extrapolated from a survey of a small percentage of US building permit offices visited by canvassing Census field agents, which estimated that 100,100 housing units were started in March, down from the 111,300 units that were started in February and the 113,1000 units that were started in January…of those housing units started in March, an estimated 71,100 were single family homes and 27,300 were units in structures with more than 5 units, down from the revised 72,900 single family starts in February and down from the 37,200 units started in structures with more than 5 units in February…

The monthly data on new building permits, with a smaller margin of error, are usually a better monthly indicator of new housing construction trends than the volatile and often revised housing starts data…in March, Census estimated new building permits for housing units were being issued at a seasonally adjusted annual rate of 1,353,000, which was 6.8 percent (±1.1 percent) below the revised February rate of 1,452,000 permits, but was 5.0 percent (±2.4 percent) above rate of building permit issuance in March a year earlier…the annual rate for housing permits issued in February was revised down from the originally reported  1,464,000….again, these annual estimates for new permits reported here were extrapolated from the unadjusted estimates collected monthly by canvassing census agents, which showed permits for roughly 116,000 housing units were issued in March, up from the revised estimate of 100,200 new permits issued in February, with permits for both single family and apartment units 7,500 higher than the previous month…. for graphs and commentary on this report, see the following two posts by Bill McBride at Calculated Risk:Housing Starts decreased to 1.216 Million Annual Rate in March and Comments on March Housing Starts

February Business Sales Down 0.5%, Business Inventories Down 0.4%

After the release of the March retail sales report, the Census Bureau also released the composite Manufacturing and Trade, Inventories and Sales report for February (pdf), which incorporates the revised February retail data from that March retail report and the earlier published February wholesale and factory data to give us a complete picture of the business contribution to the economy for that month….note that wholesale sales and inventories were revised on March 24th, which thus revised the figures that were reported a month ago, even before the usual revisions to the prior month’s data that accompany this report…

According to the Census Bureau, total manufacturer’s and trade sales were estimated to be valued at a seasonally adjusted $1,464.2 billion in February, down 0.5 percent (±0.2 percent) from January’s revised sales, but up 1.4 percent (±0.3 percent) from February sales of a year earlier…Januarys sales were concurrently revised from the originally reported $1,471.2 billion to $1,471,332 million, now a 0.5% increase from December….the value of manufacturer’s sales fell 0.2% to $500,349 million in February; retail trade sales, which exclude restaurant & bar sales from the revised February retail sales reported earlier, fell 0.5% to $463,196 million, while wholesale sales fell 0.8% to $500,660 million…

Meanwhile, total manufacturer’s and trade inventories, a major component of GDP, were estimated to be valued at a seasonally adjusted $2,012.7 billion at the end of February, down 0.4 percent (±0.1%) from the end of January, and 0.1  percent (±0.4 percent) lower than in February a year earlier…at the same time, the value of end of January inventories was revised from the $2,035.3 billion reported last month to $2,021.5 billion, now 0.3% lower than December….seasonally adjusted inventories of manufacturers were estimated to be valued at $702,008 million, down 0.3% from January, and inventories of retailers were valued at $659,246 million, 0.1% less than in January, while inventories of wholesalers were estimated to be valued at $660,230 million at the end of February, 0.6% lower than in January…

For GDP purposes, all inventories, including retail, are adjusted for inflation with appropriate component price indices of the producer price index for February, which was down by 0.9% for finished goods…two weeks ago, we looked at real factory inventories with price adjustments for goods at various stages of production, and judged those real inventories still fell short of the large increase in 4th quarter real factory inventories…however, since all retail inventories and most of wholesale inventories are finished goods, they will show modest increases in February once adjusted with the producer price index…since the 4th fourth quarter saw both real retail inventories and real wholesale inventories turn negative, any first quarter real increases in those inventories will add to 1st quarter GDP by the sum of the 4th quarter decrease plus the first quarter increase…

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